IMPACT: International Journal of Research in

Humanities, Arts and Literature (IMPACT: IJRHAL)

ISSN (P): 2347-4564; ISSN (E): 2321-8878
Vol. 7, Issue 3, Mar 2019, 463-468
© Impact Journals

IMPACT OF NEW GOVERNMENT POLICIES ON INDIAN PHARMA SECTOR- A CASE

STUDY OF PRINCE SUPPLICO

Saroj Vats & Ami Pandya

Associate Professor, Swami Sahajan and School of Management, Bhavnagar, Gujarat, India

Received: 11 Mar 2019 Accepted: 19 Mar 2019 Published: 31 Mar 2019

ABSTRACT

The manufacturing sector is always considered as backbone of an economy. Out of this Pharma, sector is much
more important as health plays a key role in a human being’s life. With the policy of past government, Indian Pharma
sector has grown up very fast. It generates nearly 22.4 % of Indian GDP every year. There are nearly 8,174 small scales to
large scale units which are working in Indian Pharma sector. It is the only sector which works on cost efficiency, growth
and increasing investments through policy support

One would surely wonder when American cancer research institute is using drugs made in India. It makes people
jealous as well as wonder. Almost all the big brands of international Pharma having their manufacturing unit in India,
particularly in Gujarat. Indian Pharma sector invests nearly 8.8% of its sales into R&D, so the growth is also rapid.

This paper aims to understand the impact of the new government over Indian Pharma sector. Are the claims of
new India and modinomics really helping in straightening on backbone? Are the SSI’s in an industrial state of Gujarat
really generating profits after a new government and its newly imposed policies?

KEYWORDS: Pharma Sector, Generating Profits after a New Government

INTRODUCTION

Indian Pharma industry is as old as Ramayana is. In Ramayana when Laxman was hit by the son of Ravan,
Hanuman found sanjeevni and gets him alive. In Mahabharata also we find evidence of medicines. The younger Pandava,
named Nakul and Sahdev were having expertise in medicine and animal husbandry. They were Ashwini Kumar means son
of God who can heal anyone with medicines. Other than this in written form, we are having Ayurveda, which is a book
containing details of procurement of deceases including cancer. Even today the Indian Pharma sector is among the best
Pharma sector in the world. Amanta to Merck, all the international brands have their factories in Ahmedabad, Pune, and
Hyderabad. A new hub for Pharma is solon, Himachal Pradesh. As per 2015 the growth rate of the Indian Pharma industry
is expected the US $ 20 Billion. Approximately 40% of the total pharmaceutical produce is exported. As per domestic
demand,70% bulk drugs is catered by the Indian Pharma Industry. India is exported approx. 40% in the Pharma industry. In
India, nearly 8,174 different types of Pharma companies.

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 464 Saroj Vats & Ami Pandya

India’s pharmaceutical companies are producing at the cost of production which is nearly 33 per cent lower than
that of the US because Indian Labor costs are 50–55 per cent cheaper than in Western countries. Today the cost of setting
up a production plant in India is 40 per cent lower than in what is required in Western countries. This Cost-efficiency
continues to create opportunities for Indian companies in global emerging markets around the world. India has a skilled
workforce as well as high managerial & technical competence in comparison to its peer’s competitors in the Asian
continent. India has the 2nd largest number of USFDA-approved manufacturing plants outside the US, Dr. Reddy’s lab,
Zydus, Sunpharma are among the few whom are largest exported of drugs to the USA. India has nearly 2,633 drug
products which are approved by the FDA. Pharma sector is part of the manufacturing sector which is basically known as
the backbone of the country. Out of India’s total GDP Pharma is having a major share. Top Indian companies play a vital
role in GDP.

Table 1
Rank Company Revenue (USD Billion)
1 Sun Pharma 196,557.52
2 Lupin 68,375.97
3 Dr.Reddys Labs 51,670.23
4 Aurobindo Pharma 45,183.87
5 Cipla 40,378.09

LITERATURE REVIEW

A report published by ASA& Associates, (2015), the Indian pharmaceutical sector is facing a tough time due to
shareholders, regulators like government and a diversified market. Big Pharma companies are outsourcing research and
development activities as an organization needs sustainable growth due to the price war in domestic as well as international
market. In this paper, the vision of Narendra Modi related to the opening of janaushdhi store was also mentioned in this
paper.

Anand & Nandkumar,( 2015), Patent and competitive dynamics in the Indian Pharma industry, describes that
India is an emerging market for intellectual property in the world of pharmacy. In comparison to US or Swiss companies,
Indian companies provide better quality with operation efficiency.

Patil K D (2017), mentioned in his paper that Indian Pharma sector is having global prospects from China to
Africa. FDI in the biotechnological field is attacking the other investors too as it is a promising sector. R& D makes it more
aggressive. Undoubtedly the future is consistent and upsurge.

Saini & Bansal, 2017, depicted in their paper about liquidity analysis of selected pharmaceutical companies in
India that Indian Pharma sector is struggling with liquidity. Except for the big sharks the small fishes are the easy target.
They mainly operate in domestic peripheral. But working capital is a challenge for all of them as research and development
in this sector is the need of the time.

Smith & McCormick, (2017), Turing pharmaceuticals: fair profit or price gouging in the drug industry, talks
abouteffect of government regulations over price control and patent relationship. Even small companies do have patents
and it plays a role in the net worth generation ofa company. The paper raised the question of the international health
industry and corporate social responsibilities of an enterprise. Monopolies in a pharmaceutical lead to contraction but high
research as the lucrative price can be charged.

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 Impact of New Government Policies on Indian Pharma Sector- A Case Study of Prince Supplico 465

Inkpen, (2017), Tanner pharmaceutical and the price of a new drug, mentioned that a US-based company with
Zorstat vaccine was accused of being greedy and insensible as it increased the price of its vaccine under price skimming
policy. Though it was part of pricing strategy as a whole because Pharma sector is directly related to the life of people, so
the issue was taken as whistleblower. It affected the share prices of the company.

RESEARCH METHODOLOGY

Research problem- new government policies affect the leverage of Indian Pharma companies?

Research Design

• Population – infinite

• Sample size – 1

• Type of sampling- Judgmental and convenient

• Sampling unit- Prince Supplico

• Time period- 4 years, (theYear 2014- 2018)

• Tools- operating and financial leverage

• Variable- profit

• Test- one sample T-test

Why Prince Supplico

Gujarat is known as the industrial state in India. All most all the type of business is available in Gujarat.
Guajarati’s and entrepreneurs are synonyms to each other. From the year 2017 India totally changes its tax system. They
removed all indirect or direct taxes and give one tax which GST (goods and service tax). Before the GST different type of
tax are applicable I different items but at present, all the raw material are included in a slab of 18% and 28%. If any
company purchase secondhand bottle than 18% of GST will be applicable.

Pharma industry in Gujarat stepped up in the year 1907. Between 35 to 46% of shares in Pharma company is
contributed by Gujarat. Jivraj Mehta (the first chief minister of Gujarat) initiated a rapid growth of Pharma industries in
Gujarat which is visible from 1960. Companies in Gujarat saw a quantum leap in production in year 1990s and 2000s.
Currently approx. 3500 drug manufacturing unit in Gujarat. The worth of the pharmaceutical industry in Gujarat is the US
$6.7 billion in 2015-2016. The export of Gujarat pharmaceutical industry is the US $ 3.06 billion in 2015-16. 80% world’s
Ionized is produced in Gujarat. Almost all the big brands available in India as Ahmedabad Surat and Bharuch are a hub for
producing Pharma based chemicals or total Pharma production. 60% of India’s orthopedic implants are manufactured in
Gujarat. As per the Gujarat government 3574 Pharma manufacturing licenses in Gujarat.

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 466 Saroj Vats & Ami Pandya

Leverage Analysis of Prince Supplico

Table 2
Particulars 2014-15 2015-16 2016-17 2017-18
Sales 19800000 22800000 25600000 28900000
V.C 3860000 3880000 3905000 3935000
Contribution(Sales-V.C) 15940000 18920000 21695000 24965000
F.C 8620000 8620000 8620000 8620000
EBIT(Cont.-F.C) 7320000 10300000 13075000 16345000
Interest @12% 600000 600000 780000 948000
EBT(EBIT-Interest) 6720000 9700000 12295000 15397000
Tax @30% 2016000 2910000 3688500 4619100
EAT(EBT-Tax) 4704000 6790000 8606500 10777900

Note: Loan

2014-15 = 5000000

2015-16 = 5000000

2016-17 = 6500000

2017-18 = 7900000

Degree of Operating Leverage = Contribution ÷ EBIT

Table 3
Year DOL(Times)
2014-15 2.17
2015-16 1.83
2016-17 1.65
2017-18 1.52

Degree of Financial Leverage = EBIT ÷ EBT

Table 4
Year DFL(Times)
2014-15 1.08
2015-16 1.06
2016-17 1.06
2017-18 1.06

HYPOTHESIS TESTING

H0: there is no impact of new government policies over Indian Pharma SMEs exports.

H1: there is an impact of new government policies over Indian Pharma SMEs exports.

Table 5
One-Sample Statistics
N Mean Std. Deviation Std. Error Mean
Operating Leverage 4 1.7925 .28194 .14097

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 Impact of New Government Policies on Indian Pharma Sector- A Case Study of Prince Supplico 467

Table 6
One-Sample Test
Test Value = 0
95% Confidence Interval of the
t df Sig. (2-tailed) Mean Difference Difference
Lower Upper
Operating Leverage 12.715 3 .001 1.79250 1.3439 2.2411

Interpretation of T Test

T= 12.715 &t0.05=3.182

T >t0.05

Null Hypothesis is Rejected

Table 7
One-Sample Statistics
N Mean Std. Deviation Std. Error Mean
Financial Leverage 4 1.0650 .01000 .00500

Table 8
One-Sample Test
Test Value = 0
95% Confidence Interval of the
t df Sig. (2-tailed) Mean Difference Difference
Lower Upper
Financial Leverage 213.000 3 .000 1.06500 1.0491 1.0809

Interpretation of T-Test

T= 213 & t0.05=

T > t0.05

Null Hypothesis is Rejected

RESULTS & FINDINGS

• Yes, there is an impact of new government policies in the Pharma sector, especially to the SMEs.

• Operating Leverage magnifies the effect of changes in sales on its EBIT.

• Year by year sales increases & therefore EBIT increases.

• From the year 2014-15 to 2017-18 the DOL is constantly decreasing & the lower DOL the better it is for the
Business.

• Financial Leverage measures the impact of Interest Expense.

• The Interest Expenses are high but still year by year the sales are increases & therefore EBIT is also increased.

• For the year 2014-15, the DFL is 1.08

• 2015-16 the DFL is 1.06

• 2016-17 the DFL is 1.06

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 468 Saroj Vats & Ami Pandya

• 2017-18 the DFL is 1.06

• For consecutive 3years the DFL remains constant which states that the firm’s Financial leverage is stable & it is
good for the Business.

• GST is having its important role after GST FL decreases.

Limitations of the Study

We have taken data for only for 4 years just to show the impact of. This project is aimed to see the impact of only
SMEs of Pharma sectors. The sample size is also limited. The impact on other sectors is not counted. The data is related to
the company which is majorly exporting.

ACKNOWLEDGEMENT

The data was collected through personal interview. No audited sheet was given in hard or soft copy due to Private
Sector Company.

CONCLUSIONS

Indian Pharma Companies need to evolve as Innovators. Big scale companies can revive their price & their
exports are also high but small scale companies cannot do so. Therefore the Government should reframe the policy for the
SMEs. A government should make space for SMEs in the domestic market. A government should provide subsidies which
help the SMEs to boost their Exports. Most of the Indian Pharma Exports are to the USA, UK, and EU so the Government
should encourage the exports to South Asian Countries.

REFERENCES

1. Patil K D, Indian Pharma industry in global context : a statistical overview, international journal of institutional
pharmacy and life sciences, (issn): 2249-6807, pg 22-28

2. Gulshan Akhtar, Indian Pharmaceutical Industry: An Overview, IOSR Journal (IOSR-JHSS) Volume 13, Issue 3
(Jul. - Aug. 2013), PP 51-66 e-ISSN: 2279-0837, p-ISSN: 2279-0845.

3. Pharmaceutical and Medical Products Practice, Executive Report, India Pharma 2020 Propelling Access and
Acceptance, Realizing True Potential, McKinsey & Company.

4. A Brief Report on Pharmaceutical Industries In India, July 2015, ASA & Associates.

5. Saini & Bansal, 2015, liquidity analysis of selected pharmaceutical companies in India, kaav international
journal of economics, commerce & business management, issn: 2348-4969 i, pg. 405-409

6. Majumder, MT & Rahman, MM, ‘Financial analysis of selected pharmaceutical companies in Bangladesh’,
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7. Pant. R, ‘Indian pharmaceutical exports: the growth story’, business standard, 2016.

8. Saleem, Q & Rehman, RU, Impacts of liquidity ratios on profitability, Interdisciplinary Journal of Research in
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